- Says they neither fear nor averse going to IMF but says it would inflict
- Points out country has already rolled out some reforms that could come with an IMF package
- CB set to present progress review on 6- months Road Map on Nov.30
- Assures no shortage of fuel, gas, milk powder, coal etc. as such imports being funded
- Expects current pressures to ease in the near term but evolving pandemic could scuttle progress
Shrugging off concerns raised by certain parties in recent times over the country’s ability to meet its foreign currency debt obligations falling due next year, the Central Bank Governor Ajith Nivard Cabraal said the provisions had already been made and thus nobody should have any doubts over the country’s ability to service its debt.
Responding to critics and detractors who find fault with the manner in which the economy is managed at present and see the International Monetary Fund (IMF) as the panacea for the economic ills facing the country, Cabraal said either with or without the Fund, the country must confront its foreign currency debt problem and the government had chosen the less painful path to deal with the issue without the Fund’s support.
Adding to the drumbeat of calls, a section of opposition legislators and scholars speaking last week at a forum, which sought a national consensus on the economy, concluded that seeking an IMF bailout was the only path for the country to avert a debt default next year.
“We have no issue in going to the IMF if we want. We have gone to them in 2009. So, no one should have any feeling that we are either scared or averse in going to the IMF,” Cabraal stressed.
Speaking at a press conference to announce the monetary policy last week, Cabraal said what the IMF would ask is to restructure the debt, something which the government had already embarked on since 2019 on their own accord by way of reducing the reliance on the sovereign bonds and seeking alternative means to rebuild the reserves.
“This is what even the IMF comes and advises us to do. Nothing else would they give,” he said.
However, according to other economists, a programme with the IMF would restore access to international capital markets as such a deal would re-instill investor confidence on the economic reform agenda and open up some concessional loans from other multilateral borrowers to ease the current foreign exchange liquidity crunch faced by the country.
Sri Lanka’s access to the international capital market to raise funds via fresh International Sovereign Bonds (ISBs) was impaired since last year as the market rattled on concerns of the pandemic and the resulting loss of reserves and State revenues. Several rating downgrades by international rating agencies since last year also remain a big hurdle in accessing the international capital market.
Cabraal however reminded that the foreign debt situation exacerbated prior to 2020 when the country issued US$ 6.9 billion worth new sovereign bonds from April 2018 to June 2019, tripling the total sovereign bonds outstanding to US$ 15.0 billion from US$ 5.0 billion by the end of 2014, raising ISBs to the Gross Domestic Product to 18 percent from 6 percent.
As a result, he said the government, which came to power in 2019 took a conscious decision to raise no more funds through ISBs and looked for alternative funding sources and non-debt creating inflows to rebuild the reserves.
However, the pandemic which struck the nation in March 2020, scuttled any such plans as inflows from exports, tourism and direct investments ran dry and the government had to utilise foreign reserves to settle the foreign debt.
Without providing anything specific, Cabraal said the inflows listed in the 6-month road map presented on October 1 is currently being worked out and on track, and the negotiations on several such funding lines are at advanced stages.
The Central Bank on November 30 will present the country of the progress they made with regard to the proposals in the road map.
“There has been some noise around the country’s ability to pay back its loans in the recent past and we need to very clearly tell you we pay our loans and we have made all provisions required for that. So, I would like to tell anyone and everyone who has such concerns, that no-one must have any doubt or unease over that,” Cabraal stressed.
He also brushed aside the claims made by various quarters including media over shortages in fuel and other commodities as the Central Bank continues to facilitate such imports.
While acknowledging the economic hardships faced by people due to the higher prices among other things, Cabraal expressed confidence that such pressures would ease in the next couple months with the supply chains unclogging. However, the evolving virus could continue to pose new threats on the country’s emergence from the pandemic as global markets swooned and reached for safe haven assets on the news of detecting a new COVID variant from South Africa.
Considering the fragile nature of the Sri Lankan economy and its nascent growth, the Central Bank repeatedly asked the government to strike a balance between the virus containment measures and the economic opportunities for the people in the country who have been battered harshly for nearly 2 years.
Broad-based lockdowns or restrictions on economic activities are no longer an option for the hobbling Sri Lankan economy as such restrictions could further strain supply chains, pushing up already higher prices and neither the government nor the Central Bank is currently in a position to provide assistance to those who lose livelihoods.
Hence this time the virus should never be allowed to transcend from a health challenge to an economic catastrophe as was done myopically in April.
If the government continues to tighten controls over the normal course of lives of the people anymore citing the virus after having been fully vaccinated as seen in most parts of Europe, people will lose trust in vaccines and would defy such decrees as seen from the public backlashes against lockdowns, vaccine and mask mandates.
Meanwhile, Cabraal said they could handle better the situation of the economy to ride out the current stresses without inflicting any more pain, which could come by way of an IMF package.
He said an IMF package would ask the country to raise the interest rates by between 30 to 50 percent, to depreciate the rupee, to reduce the number of government servants, reduce or curtail pensions and sell State assets, all which could cause serious public agitation and thereby inflict political and economic damage in the near term.
“Our view is that, that kind of a reform agenda is not required at present,” said Cabraal. “If we can achieve the results with less pain and with less uncertainty and less amount of political and economic turmoil, I think that’s the option we should choose. And that’s the option we have chosen,” he added.
According to economists, however much of these reforms are painful in the short-term, these must be carried out to bring about durable economic well being to the masses. However, successive governments, with the exception of the previous government during its last couple of years kicked the can down road with the aim of appeasing their electorate.
And as a result, the economic and social problems faced by the country have compounded and entrenched to a level they cannot be undone.
The last government too paid a serious price as they lost the presidential election by a huge margin and the then ruling party’s parliamentary representation reduced to a single seat at the following year’s general election.